Question

A company incurs $1100000 of overhead each year in three departments, Processing, Packaging, and Testing. The company performs 800 processing transactions, 190000 packaging transactions, and 2000 tests per year in producing 390000 drums of oil and 590000 drums of sludge. The following data are available:

Department	Expected use of Driver		Cost
Processing	800		$490000
Packaging	190000		490000
Testing	2000		120000

Production information for sludge is as follows:

Department	Expected use of Driver
Processing	600
Packaging	95000
Testing	400

Calculate the amount of overhead assigned to sludge

$550000

$636500

$391500

$269000

Answer 1

Activity cost pool	Activity measure	Estimated overhead cost	Expected activity	Activity rate	Activity used by Sludge	Overhead allocated to Sludge
Processing	Processing transaction	490,000	800	490,000/800 = $612.5 per processing	600	612.5 x 600 = 367,500
Packaging	packaging transaction	490,000	190,000	490,000/190,000 = $2.5789473684210 per packaging	95,000	2.5789473684210 x 95,000 = 245,000
Testing	test	120,000	2,000	120,000/2,000 = $60 per test	400	60 x 400 = 24,000
Total						$636,500

Overhead allocated to Sludge = $636,500

Second option is the correct option